A U.S. appeals court denied a petition by Agility in a legal setback for the Kuwaiti logistics firm that faces prosecution on charges it defrauded the U.S. Army in multibillion-dollar contracts.

Agility was the largest supplier to the U.S. Army in the Middle East during the war in Iraq after the Sept. 11 attacks with contracts worth around $8.5 billion.

The case is one of the largest military fraud cases in U.S. history and is politically sensitive in both Kuwait and Washington.

The U.S. Court of Appeals for the 11th Circuit denied a “Writ of Mandamus” petition in a decision that, coupled with a ruling last week, appears to effectively clear the way before a pretrial phase of the case.

It also appears to spell an end to around 18 months of legal wrangling over whether the U.S. Department of Justice correctly served its indictment against the company.

Agility’s lawyers argued the November 2009 indictment was invalid because prosecutors served it only on the company’s U.S. subsidiary and not on the Kuwait-based parent company, Public Warehousing Company K.S.C. a.k.a. Agility.

The issue came to a head last week when the appeals court based in Atlanta decided against the company’s challenge to a district court ruling in March, which denied Agility’s motion to quash “service of process” of the indictment.

The appeals court dismissed the challenge on procedural grounds.

But Agility still had a Writ of Mandamus outstanding, which would have required the appeals court to order the district judge to vacate the decision he took in March.

“The petitions for Writ of Mandamus are denied,” said a brief notice by the court.

There are no further major legal hurdles before the pretrial phase of the case and the next step could be an arraignment, a legal analyst said.

Agility reiterated a previous statement that it was still in conversations with the Department of Justice and was preparing a vigorous defense.

The company argues the case involves a civil contract dispute rather than a criminal matter. The government filed a civil suit in January.

The case is the United States of America versus Agility DGS Logistics Services Company, d.b.a. PWC Logistics Services K.S.C. (c). It is numbered 11-11652-C and was filed in the United States Court of Appeals for the 11th Circuit in Atlanta. (Reuters)